The financial statements of the Ito Company are shown in Exhibit. Compute the following for the 20X2 financial statements.
1. Return on total assets (computed using EBIT in the numerator).
2. Divide your answer to requirement 1 into two components: EBIT-to-sales and total asset turnover.
3. After-tax rate of return on total assets. Be sure to add the after-tax interest expense to net income.

Statement of Income and Reconciliation of Retained Earnings

4. Rate of return on total stockholders€™ equity including returns to both common and preferred stockholders. Did the preferred and common stockholders benefit from the existence of debt? Explain fully.
5. Rate of return on common stockholders€™ equity. This ratio is the amount of net income available for the common stockholders, divided by total stockholders€™ equity less the par value of preferred stock. Did the common stockholders benefit from the existence of preferred stock? Explain fully.
6. Calculate inventory turnover. How would Ito have been helped if it had been able to maintain the level of inventory from20X1?

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BALANCE SHEETS December 31 20X2 20X1 Assets Current assets Cash Short-term investments Recelvables, net Inventories at cost Prepayments Total current assets Y 2,000 1,000 4.000 8,000 1,000 416,000 23,000 439.000 Y 3,000 5,000 11,000 1,000 Y20,000 22,000 ¥42.000 Plant and equipment, net Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Accrued expenses payable Income taxes payable Total current liabilities Y10,000 500 1,500 412,000 10,000 Y 6,000 500 1,500 Y 8,000 ¥10.000 8% bonds payable Stockholders' equity Preferred stock, 12%, par value $100 per share Common stock, $5 par value Premium on common stock Retained earnings Reserve for plant expansiorn Total stockholders equity ¥ 5,000 4,000 8,000 2,000 1,000 Y20,000 442,000 ¥ 5,000 4,000 8,000 3,000 1,000 21.000 439,000 Total liabilities and stockholders' equity Year Ended December 31, 20X2 Sales (all on credit) Cost of goods sold Gross profit on sales Other operating expenses 444,000 32,000 #12,000 Seling expenses 45,000 2,000 1,000 Administrative expenses Depreciation Operating income Interest expense Income before income taxes Income taxes at 40% Net income Dividends on preferred stock Net income for common stockhoiders Dividends on common stock Net income retained Retained earnings, December 31, 20X1 Retained earnings, December 31, 20X2 8,000 4,000 800 3,200 Y 1,280 Y 1,920 600 1,320 2,320 (1,000 3,000 M 2,000